Insurance can be downer to upscale life

FCW's Friday Financials column examines the insurance challenges faced by prosperous property owners

In one important way, prosperous homeowners are no different from other homeowners: They need property/casualty insurance. But while their basic needs may not be unique, their upscale lifestyle often demands closer-than-usual attention to their insurance policies.

Insurance challenges include:

Multiple homes and multiple policies. Expensive remodeling projects and improvements. Riders for jewelry, wine cellars and art collections. Greater vulnerability to natural disasters. Greater personal liability needs due to a "higher profile." Let's start with one of the biggest—and often most overlooked—challenges for prosperous homeowners: multiple homes and multiple assets to insure. A well-to-do homeowner might have a primary residence in Ohio, a vacation cabin in Colorado, an apartment in Los Angeles and a boat in Florida.

Typically, the homeowner insures with local agents in each area, ending up with a patchwork of agents, carriers, policies and expiration dates. The homeowner can wind up with duplicated coverage, or worse, no coverage at all for some property because it was overlooked or because a policy expired. For example, it's easy to move personal property from one home to another and forget to include that property under the new residence's policy.

Prosperous homeowners with more than one home and a variety of real property can help themselves by at least centralizing the review of their insurance needs with a single financial adviser, such as a certified financial planner. The adviser can review your entire estate to be sure everything is properly insured for the right amount and that there are no gaps or needless complications.

The adviser also may spot opportunities to consolidate insurance carriers. A single carrier may not be able to insure everything—say homes in different states—but the more that can be consolidated, usually the less expensive the overall cost.

The adviser may recommend increasing deductibles. It's not uncommon for well-to-do homeowners to have a $250 deductible on property, even though they clearly could afford to cover small losses and thus save thousands in premiums by raising the deductibles.

Another problem for upscale homeowners is that often they own property in locations vulnerable to natural disasters, such as hurricanes, flooding and forest fires. This requires special attention. Flooding, for example, is not covered under a standard homeowner's policy. The federal government is the sole insurer for flooding, although you can buy it through an insurance agent.

Carriers also are changing how they charge for hurricane-related damage. Some are switching from a flat-dollar deductible to one based on a percentage of the policy value, which could prove to be very high for upscale homes.

Expensive homes also tend to include extensive, and expensive, remodeling or improvements. It's easy to forget to update the policy once the work is done.

Furthermore, many insurance carriers are dropping guaranteed full-replacement policies that automatically beef up coverage to account for home improvements, building code changes and equity appreciation. Increasingly, it is the homeowner's responsibility to be sure coverage is up to par.

Pay special attention to riders or specialized coverage. Some carriers have raised the sub-limits of their homeowner's policies for affluent policyholders to cover replacement for jewelry, furs and silverware. However, you usually will need additional coverage through riders, especially for such nonstandard property as expensive wine cellars or an art collection. Take special care to obtain appraisals and to document such items in writing and with photographs. Document any remodeling work and, for that matter, all other personal property.

A minimal amount of liability coverage is generally included in a standard homeowner's policy. However, more prosperous homeowners should acquire additional coverage through an umbrella policy. These personal liability policies are quite reasonable, especially if bought through the homeowner's insurance carrier.

Clearly, the challenge for prosperous homeowners is to keep extensive coverage needs up to date. That's why it's wise to automatically schedule periodic meetings with your financial adviser to be sure that your property/casualty coverage reflects your current needs.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.

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